Centrica questions Ofgem’s profits claim as British Gas half-year takings fall

The big six energy firms that dominate the UK market will double their profit margins over the next year, Ofgem has said. However, after announcing a slump in half-year profits, British Gas owner Centrica has dismissed this claim.

On Wednesday, the energy market regulator said it expects the leading energy firms to make £106 per dual fuel customer in the next year, up from £53 last year.

The energy giants – whose profits are already under investigation by the Competition and Markets Authority (CMA) – rejected this.

Their position was on Thursday strengthened by newly posted results from British Gas. The firm said its operating profits fell by 26%, down to £265 million, in the first half of 2014. 

Centrica subsequently reported that the average annual British Gas customer bill would be £90 lower this year than in 2013.

Criticising Ofgem, Angela Knight, chief executive of the trade body Energy UK, said, “It cannot be right to publish numbers and estimates which imply profits which turn out not to exist.

“Using estimates that are as inaccurate as these, and which often result in misconceptions and misunderstandings, gets us nowhere.” 

Ofgem responded, “Consumers need a clear explanation from suppliers as to why, when costs are falling, they are not seeing cuts in energy prices as we would expect in a competitive market.” 

Indeed, critics have pointed out that British Gas profits have fallen because of lower demand, caused by a warm winter, rather than lower prices. 

Stephen Murray, energy expert at MoneySuperMarket, said, “While the industry is challenging Ofgem on the accuracy of these estimates, we already know that margins have been increasing year-on-year so it is an upward trend that appears to be continuing. 

“The facts are, prices have been rising sharply over the past few years, while wholesale energy costs have been falling dramatically over several months so margins have increased as a result.” 

Consumer confidence in the big six – British Gas, SSE, E.ON, EDF, Npower and Scottish Power – remains low after each significantly hiked their 2013 winter prices. 

Recent figures from the energy ombudsman show that complaints to energy companies have hit record highs, with figures for 2014 more than double that of 2013. 

Many consumers flocked to smaller energy companies, such as Good Energy, who have seen their profits rise as a result. 

Earlier this week, Ofgem also announced new measures that could reduce household energy bills by around £12 per year from 2015.

The proposed price controls for five electricity network operators would cap their spending on maintenance and upgrades at £17 billion. The costs of maintenance and upgrades currently account for 8% of an average fuel bill.

Photo: Tom Page via Flickr

Further reading:

Up to £3.7m in pay and share incentives for Centrica new boss

Ofgem announces plans to reduce electricity bills through new price controls

Energy complaints reach new record high

Unhappy ‘big six’ customers flock to Good Energy, whose profits see sharp rise

Ofgem calls for wide-ranging competition inquiry into energy market